• Port Hills swings to
National, Palmerston North too close to call and Waimakariri
extremely tight

• NZ First to hold
balance of power and expected to back
National

• Cunliffe’s position
strengthens while Robertson and Joyce weaken

•
National marginally ahead for
2017

Commentary:

For the first
time, the 7000 registered traders on New Zealand’s online
predictions market, iPredict, are picking that the country
will fail to achieve a fiscal surplus in 2014/15 but most other economic forecasts are broadly steady. In politics,
National Party leader John Key’s decision not to reach an
electoral accommodation with the Conservative Party appears
to have dashed any chance it had of entering parliament in 2014, and the Maori Party is again picked as
likely to leave Parliament. NZ First is expected to hold the balance of
power and back a National-led government. Following a
controversial debate between Steven Joyce and Grant
Robertson on TV3’s The Nation, both have lost
ground in the contest to become the next leader of National and Labour respectively, although both remain
favoured. David Cunliffe’s probability of remaining Labour leader after the election has improved
marginally, as have National’s chances of winning a fourth
term in 2017.

Economic
Context

Growth expectations are steady this
week. Growth in the June quarter is now expected to be 0.9% (steady
compared with last week), 1.0% in the September quarter (steady) and 1.2% in the December quarter (steady). Forecast annual growth for
2014 is steady on 4.1%.

Unemployment expectations are also unchanged
this week. Unemployment is expected to be 5.7% in the June quarter (steady compared with last week), 5.5%
in the September quarter (steady) and 5.5% in the December quarter (steady).

Forecasts for the current
account deficit are also steady this week. The forecast
deficit for the June quarter is 2.8% of GDP (steady compared with
last week), 3.7% in the September quarter (steady) and 3.9% in the December quarter (steady).

A fiscal deficit in 2014/15
is expected for the first time. The probability of a fiscal surplus in 2014/15 has continued its dramatic fall this
week, and is now just 34%, down from 50% last week, 64% two
weeks ago, 76% three weeks ago, 84% four weeks ago and 86%
five weeks ago. The surplus forecast for 2014/15 is now
just 0.06% of GDP, down from 0.22% last week, 0.31% two
weeks ago, 0.37% three weeks ago, 0.42% four weeks ago and
0.43% five weeks ago. Future surplus forecasts are steady
at 1.0% of GDP in 2015/16, 2.0% for 2016/17 and 2.4% for 2017/18.

Short-term inflationary expectations
have eased marginally this week and remain below the Reserve
Bank’s 2% target midpoint through 2014. Annual inflation
to the end of the September quarter is expected to be 1.6% (steady compared
with last week) and 1.7% in the December quarter (down from 1.8%).

Interest-rate expectations have again eased
marginally this week. Compared with the rate of 2.5% at the
start of 2014, the market is pricing that the OCR will be up
101 basis points in September (up from 100 last week), 104 inOctober (steady), 110 in December (down from 111), 115 in January 2015 (down from 117), 132 in March 2015 (down from 133), 140 in April 2015 (down from 142) and 156 in June 2015 (down from 158).

Party
Vote

All current party leaders, including
Maori Party co-leader Tariana Turia, are expected to remain in their roles until nomination day with at least 87%
probability. The party vote turnout is expected to be 74.4% (up from 74.1%
last week).

Of major parties, National is expected to win 44.6% of the party
vote (up from 44.2% last week), Labour is expected to win 28.6% (down from
29.6%), and the Green Party is expected to win 10.3% (down from
10.7%).

In
electorate contests, Mana has an 87% probability of winning at
least one seat (up from 86% last week) but its expected
electorate representation is down to 1.1 MPs (from 1.2 MPs
last week). The probability Mana leader Hone Harawira will
win Te Tai Tokerau is 85% (steady compared with last week)
but its candidate in Waiariki, Annette Sykes, is down to 27% (from
43% last week).

Act’s probability of winning at least one
electorate seat is 85% (up from 84% last week), and its
expected electorate representation is 0.9 MPs (steady). The
market is pricing that its candidate David Seymour has an
85% probability of winning Epsom (steady).

UnitedFuture has an 86% probability of winning at
least one seat (up from 85% last week) and its expected
electorate MP representation is 0.9 MPs (up from 0.8 MPs
last week). Its probability of winning Peter Dunne’s Ohariuelectorate is 86% (up from 83% last
week).

After a couple of weeks of upward movement, the Maori Party is again set to leave parliament. It
now has a 48% probability of winning an electorate (down
from 51% last week) and its expected electorate
representation is down to 0.6 MPs (from 0.7 MPs last week).
The probability co-leader Te Ururoa Flavell will win Waiariki is now 45% (down from 50% last
week).

Following National Party leader John Key’s
announcement his party will not reach an accommodation with
the Conservative Party in East Coast Bays, Colin Craig’s
vehicle appears out for the count. It now has just an 8%
probability of winning an electorate seat (down from 35%
last week), and its expected electorate representation is
now just 0.06 MPs (down from 0.4 MPs last week).

The
market prices that Mr Craig has just a 7% probability of
winning in East Coast Bays against Murray McCully (down from 33%
last week) while Christine Rankin has just a 4% probability
of winning Epsom over Act’s David Seymour and
National’s Paul Goldsmith.

The Greens and NZ First continue not to be expected to win
electorate seats.

The six most marginal seats, excluding
those mentioned above, are Palmerston North, Port Hills,
Waimakariri, Christchurch Central, Hutt South and West
Coast-Tasman.

In Palmerston North, National’s Jono Naylor last week had
an edge over Labour incumbent Ian Lees-Galloway, with a 55%
probability of winning the seat, but this week the two are
again in a dead heat, at 50% probability each.

In Port Hills the forecast winner has changed.
National’s challenger, Nuk Korako now has a 53%
probability of defeating Labour incumbent Ruth Dyson, who
was favoured on 59% last week.

In Waimakariri, National’s Matthew Doocey now has
just a 53% probability of holding out Labour’s Clayton
Cosgrove (down from 62% last week).

In Christchurch Central, Labour’s Tony Milne has just a 67%
chance of defeating National incumbent Nicky Wagner (down
from 79% last week).

In Hutt South, Labour incumbent Trevor Mallard now
has a just 69% probability of holding out against
National’s Chris Bishop (down from 85% last week).

In West Coast-Tasman, Labour incumbent Damien O’Connor has
a 69% chance of holding out against National’s Maureen
Pugh (steady).

Election Result & Alternative
Scenarios

Based on the party-vote and
electorate forecasts above, Parliament would consist of:
National 57 MPs (up from 56 last week), Labour 37 MPs
(steady), the Greens 13 MPs (steady), NZ First 7 MPs
(steady), Internet-Mana 4 MPs (up from 3), Act 2 MPs
(steady) and UnitedFuture 1 MP (steady). The Maori Party
would not retain any seats. Parliament would have 121 MPs
and a government would be required to have the support of 61
MPs on confidence and supply.

Under this scenario,
National could only govern with the support of NZ First with
whom it would hold 64 seats (up from 63 last week). Labour
could also form a government with the Greens, Internet-Mana
and NZ First, with a combined 61 seats.

Were the Maori
Party to win Waiariki, Parliament would be the same as above
except that Labour would have 36 MPs and the Maori Party
one. In this case, a National/Act/UnitedFuture/Maori Party
government would be a possibility, with 61 MPs, joining the
potential National/NZ First and
Labour/Green/Internet-Mana/NZ First governments as an
option.

Given that NZ First will hold the balance of power
under the primary scenario, iPredict has also analysed its
bundle of stocks forecasting NZ First’s decision-making should it hold the balance of power.
This indicates its preference is continuing to shift more
strongly towards National. There is a 53% probability NZ
First would support a National-led government (down from 55%
last week) but a 12% probability he would give confidence
and supply to neither National nor Labour (up from 4% last
week) favouring the larger bloc, which the market indicates
would be National-led. There is a 34% probability Mr Peters
would support a Labour-led Government (down from 41%)

Overall, National now has an 81% probability of
leading the next government, down from 82% last
week.

Post Election
Developments

David Cunliffe’s immediate position as Labour leader
has improved. There is now a 58% probability he will depart
as leader by the end of 2014 (down from 65% last week), an
80% probability he will depart by the end of 2015 (down from
86%), an 85% probability he will depart by the end of 2016
(down from 88%) and a 93% probability he will depart by the
end of 2017 (down from 95%).

In National, John Key’s short-term position remains broadly
steady. He now has a 12% probability of departing by the
end of 2014 (up from 11% last week), a 31% probability of
departing as leader by the end of 2015 (down from 33% last
week), a 52% probability of departing by the end of 2016
(down from 55%), but an 82% probability of departing by the
end of 2017 (up from 77%).

Following a controversial
debate on TV3’s The Nation over the weekend, both
Labour’s Grant Robertson and National’s Steven Joyce’s
probability of being the next leaders of their party have
fallen, although both remain favoured.

Mr Robertson now
has a 60% probability of being the next Labour leader, (down from 66% last week). David
Parker remains in second-place with 16% probability (up from
15%), followed by Andrew Little on 9% (up from 5%) and
Jacinda Ardern on 5% (down from 8%).

For his part, Mr
Joyce now has a 40% probability of succeeding Mr Key as National Party leader, (down from 45% last
week). He is followed by Judith Collins on 18% probability
(up from 17%), followed by Bill English on 8% (up from 7%),
Paula Bennett on 6% (down from 7%) and Simon Bridges on 5%
(down from 7%). “Other” is on 8%, up from 7% last
week.

Labour’s chances of winning the 2017 election have fallen to 47% (from 50%
last week and 52% the week before). National has a 50%
probability of winning in
2017.

Miscellaneous

iPredict Ltd
is owned by Victoria University of Wellington. Details on
the company and its stocks can be found at www.ipredict.co.nz. The
weekly political update is prepared by Exceltium Ltd on a
pro bono basis and is based on a snapshot taken at a random
time each week. This week’s was taken at 9.28 am
today.

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